By Mark Baldassare, president and CEO, Public Policy Institute of California

This opinion article appeared in theSacramento Bee on February 3, 2008

What a difference a year makes. Last January, the post-partisan era seemed in full bloom when recently re-elected Gov. Arnold Schwarzenegger promised to build on the positive momentum gained from passing global warming legislation and other bipartisan successes in 2006. He announced health care reform as his goal for 2007 and pointed ahead to the "year of education" in 2008. But by summer, the economy began to slow – triggering downward forecasts for state revenues. The multibillion-dollar budget gap was back.

Despite much hand-wringing in Sacramento that the "year of education" has now morphed into the "year of the budget," the current fiscal crisis provides a silver lining: a once-in-a-political-lifetime opportunity to tackle California's perennial budget issues. This could be the year that the governor and the Legislature take on the current budget gap and address the long-term, recurrent structural issues.

State expenditures are exceeding current revenues and chronic deficits will continue until lawmakers deal with California's spending and tax systems. If the state's leaders can put budget discord behind them and move toward fiscal reality, California could get serious about allocating its resources toward prudent investments for a better future.

Schwarzenegger rode a wave of economic discontent to victory in the 2003 governor's recall, during a massive state budget deficit. But so far, he has been unable to honor his promise to get California's financial house in order.

The governor convinced voters to pass a fiscal recovery package – Propositions 57 and 58 – in 2004, vowing that borrowing billions in bond money to fill the budget hole would be followed by "tearing up the credit cards." But Schwarzenegger's efforts to reel in state spending ended in defeat the following year, when his budget initiative, Proposition 76, lost by a wide margin.

The lesson? Voters favor fiscal plans forged in political consensus and reject calls for budget actions made during partisan bickering.

Schwarzenegger and the legislative leadership have been more productive since the bitter battles of 2005. In addition to their work on global warming and the infrastructure bonds, there have been agreements on prescription drug discounts, minimum wage increases and a prison-overcrowding plan, and bi-partisan efforts continue on health care reform. This year's budget offers the biggest test yet for post-partisan governing in California.

Moreover, the state's elected officials are currently in a rare position to take on tough issues, as they now face little political risk. The governor is in his final four-year term, freeing him from the political calculations of re-election campaigning. Many legislative leaders will be termed out of office by year's end unless Proposition 93, the term limits reform, passes Tuesday. If Proposition 93 passes, legislative leaders will run for reelection in safe districts where there is little threat of losing their seats.

Voters, meanwhile, are worrying about grim statistics on the state budget and talk of an impending economic recession. In the Public Policy Institute of California Statewide Survey in January, seven in 10 voters expect bad economic times for the state, and two in three say the state's multibillion-dollar budget gap is a "big problem." Such major economic concerns – the highest we have seen since the 2003 governor's recall – provide a critical impetus for Democratic and Republican leaders to find common ground on fiscal issues.

Change is the buzzword this year – not only in the presidential primaries but also in California, where residents are calling for change from Sacramento. The state budget and the economy rank as the top two issues voters want the Legislature and governor to work on in 2008. Two in three voters say it's a good idea that the governor declared a fiscal emergency and submitted a proposal to the Legislature to address it. The public has hope that state officials can rise to the occasion; half predict Schwarzenegger and the Legislature will be able to work together and get things done in the year ahead.

Californians are notorious for wanting "something for nothing" from state government – namely, more spending and lower taxes. But they are now giving lawmakers a surprising amount of wiggle room on spending limits and tax increases. For example, although seven in 10 residents believe there is waste in state government, a majority of residents are willing to raise taxes to maintain current funding levels for schools and health care. And while majorities favor creating new revenue sources, such as higher income taxes on the wealthy and taxes on goods sold online, many would also support a constitutional amendment limiting annual increases in the state budget. Voters support a variety of fiscal proposals that lay the groundwork for budget compromises and may back an even broader array of proposals if they see clear signs of bipartisan agreement.

The question is whether the governor and the Legislature can seize the moment and take a fresh look at the long-term, structural budget issues that have been ignored for the sake of political expediency. Such a breakthrough would go beyond the annual budget dance and allow them to think through the investments in education, transportation, water, environment and infrastructure needed for the state to grow and prosper in the 21st century. Through bold action, the state's elected leaders could leave a lasting legacy for California in 2008. But if they do nothing, voters may decide to take action themselves – as they did 30 years ago, with Proposition 13.